List of accounting terms in this video

 Entity  Loss
 Transaction  Gain
 Account  Discount
 Debit  Receipt
 Credit
 Goods
 Assets and its type
 Liabilities and its types
 Capital
 Drawing
 Expense
 Revenue
 Income
 Profit
List of accounting terms in this video
 Capital receipts  Trade payables
 Revenue receipts  Voucher
 Expenditure and its types  Discount and its type
 Stock  Insolvent
 Inventory  Bad debts
 Debtors  Bad debts recover
 Bill receivable  Livestock
 Trade receivable  Investments
 Creditors  Depreciation
 Bills payable  Merchandise
An entity means an economic unit which performs economic activities
like Reliance Industries, Big Bazaar, Tata Motors, HCL Technologies Ltd.,
etc. A business entity means an enterprise established in accordance
with law to engage in business activities. These include Sole
proprietorship firms, partnership firms, companies, etc.
Transaction is an Economic activity or a financial event entered
into by the entity, having monetary impact on the financial
statements and recorded in the books of account. It affects the
financial position of the business and can be measured in terms
of money.
 Account, Debit and Credit

An account is a record of all business transactions

relating to a particular person or item. In accounting we
keep a separate record of each individual, asset or
liability, expense or income. The place where such a
record is maintaining is termed as an account.
In other words, an account is a T shape format which is
drawn to record the business transactions which has
two sides, the left-hand side is termed as Debit side and
the right-hand side is termed as Credit side.
 Goods
Goods include all those things which are purchased in the
business for resale or which are used for producing the finished
products, which are also meant to be sold.
For example, TV, fridge, washing machine, etc. will be termed as
goods for an electrical shop.
Goods are recorded in accounting by using the following of the
four names:
 Purchase, when goods are purchased
 Sales, when goods are sold
 Purchase return, when goods are returned to the suppliers
 Sales return, when goods are returned by a customer.
 Assets
Anything which is in the possession or is the property of a business
enterprise is called an asset. In other words, anything which will enable a
business enterprise to get cash or a benefit in future is an asset.
For example, cash and bank balance, stock, furniture, machinery and
building, etc.

Definition,
"Assets are valuable resources owned by a business which are acquired at
a measurable Mani cost."
Professor R.N. Anthony
 Types of asset

 Short term assets or current assets

 Long term assets or Non-current asset
 Tangible assets
 Intangible assets
 Fictitious or nominal assets
 Short term assets or Current Assets

Current assets are those assets which are meant

for sale or which the management would want to
convert into cash within one year.
For example, cash in hand, debtors, stock, etc.
 Non current assets
Non current assets refers to those assets which are held for continued use in
the business for the purpose of producing goods or services and are not
meant for sale. These are held in the business for more than one year.
For example, plant and machinery, land and buildings, furniture etc.
These are further divided into two parts:
Tangible assets
Tangible assets are those assets which can be seen and touched or we can
say that which have a physical existence. Such as land and buildings, plant
and machinery, computers, furniture and fittings etc.
Intangible assets
Intangible assets are those assets which do not have a physical existence or
we can say that which cannot be seen, touched or felt.
For example, Goodwill patents copyrights, trademarks, computer software
etc.
 Fictitious or nominal assets
These are assets which cannot be realised in
cash or no further benefit can be derived from
these assets. In other words, fictitious assets are
those assets which are neither tangible assets
nor intangible assets.
These assets include debit balance of profit and
loss account and expenditure not written of such
as advertisement expense etc.
 Liability
It refers to the amount which the firm owes to outsiders.
For example, amount payable to creditors, amount due to the
bank as a loan, salary unpaid to the office staff, rent payable to
the landlord etc.
Liabilities may be divided as follows:
On the basis of relationship with the firm:
 Internal liability
 External liability
On the basis of duration:
 Short term liabilities or current liabilities
 Long term liabilities or Non current liabilities
Internal liability
All amount which a business entity has to pay to the proprietors of the owners are
internal liabilities such as capital and accumulated profits and reserves.

External liabilities
All amount which a business entity has to pay to the outsiders are known as external
liabilities such as creditors, bank overdraft, bills payable, bank loan etc.

Short term liabilities

Current liabilities refers to those liabilities which are to be paid in near future normally
within one year. For example, bank overdraft, bills payable, creditors, outstanding
expenses, etc.

Long term liabilities

This refers to those liabilities which fall due for payment in relatively long period
normally after more than one year. For example long term loans, debentures, etc.
 Capital
It refers to the amount invested by the proprietor in the
business enterprise. Amount may be in the form of cash,
goods or assets. It is an internal abilities for the business.

Drawing
It refers to the withdrawal by the proprietor from Business
funds, Assets and Goods for his personal use.
For example, the proprietor of a business withdrew cash from
office to celebrate birthday party at his home.
 Expenses
Expense is the cost incurred in producing and
selling the goods and services.
In the words of Finney and Miller "Expense is the
cost of use of things or services for the purpose of
generating revenue."
It may include:
 Cash payment such as salaries, wages, rent, etc.
 Writing off part of fixed assets that is
depreciation.
 Cost of goods sold
 Revenue

It basically consists of the amount received from

sale of goods and from services provided to the
customers.
Revenue is related with the day-to-day affairs of
the business and should also be regular in nature.
 Income
Income is different from revenue. Amount received from
sale of goods is called revenue and the cost of goods
sold is called expenses. Surplus of revenue over
expenses is called income.
For example, the goods costing rupees 200000 are sold
for rupees 280000. The sale amount of rupees 280000 is
the revenue, the cost amounting to rupees 200000 is
expenses and the difference between the two that is
rupees 80000 is income.

Income = Revenue - Expense

 Profit
It is the excess of total revenue over total expenses
of a business enterprise for an accounting period.

Gain
It is a monetary benefit or profit or advantage resulting
from event or transactions which are incidental to a
business such as sale of fixed assets, winning a court case
etc.
Discount is the deduction in the price of the goods sold or
amount due by the seller of goods and/or services .
 Types of Discount
Trade Discount
Trade Discount is discount allowed by the seller of goods at an
Discount
agreed percentage of list price, for goods being purchased in
quantity. It is not recorded in books.

Cash Discount
Cash Discount means certain deduction (in amount due)
allowed by the seller for making payment within the
stipulated period or earlier. It is recorded in books at the time
of payment. Cash discount acts as an incentive that
encourages prompt payment by the debtors.
 Loss
The term loss conveys two different meaning.
First, it conveys the result of the business for a period
when total expense exceeds the total revenues. for
example, if revenue are rupees 300000 and the expenses
are rupees 350000, the loss will be rupees 50000.
second, it refers to some fact or activity against which
the firm receives no benefit.
For example, loss by fire and loss by theft etc.
 Receipts

Amount received from any source is known

as receipts. Like cash received from sale of
goods, cash received from debtors, cash
received from insurance company as a
compensation, cash received against loan
taken from Bank, etc.
 Capital receipts

It is the amount received against the transactions which are not

revenue or regular in nature. They are shown in the balance
sheet on the liability side.
Examples of capital receipts:
 Amount received from sale of fixed assets or investment
 Amount received by way of loans
 Capital contributed by proprietor
 Revenue receipts
It is the amount received in the normal course of
business against sale of goods or rendering the
services. They are shown in the the trading and profit
and loss account.
Examples of revenue Receipts
 Money obtained from sale of goods
 Commission and fees received for services rendered
 Interest and dividend received on investment
 Expenditure
Any disbursement of cash or transfer of property or
incurring a liability for the purpose of acquiring Assets,
goods or services is called expenditure.

Types of expenditure;
 Capital expenditure
 Revenue expenditure
 Deferred revenue expenditure
 Capital expenditure

Any expenditure which is incurred in acquiring or increasing the

value of a fixed asset is termed as capital expenditure. Capital
expenditure yields benefit normally over a long period. It is incurred for the
purpose of increasing the earning capacity of business. As such the
amount spent on the purchase or erection of building, plant,
furniture etc. is capital expenditure.
 Revenue expenditure

Any expenditure, the full benefit of which is received during one

accounting period is termed as revenue expenditure. Revenue
expenditure yields benefit for maximum period of one year. It is
incurred for maintenance of earning capacity that is for keeping
the assets in an efficient working order. such as, cost of goods
sold, salaries, rent, electricity charges, telephone charges, etc.
 Deferred revenue expenditure

It is a revenue expenditure in nature but it is charged in more

than one accounting period because it is estimated that benefit
of such expenditure will accure in more than one financial year.
For example, large advertisement expenditure that will give
benefit for more than one accounting period is a deferred
revenue expenditure.
 Stock
The unsold portion of goods (which are purchased
for reselling) in the business enterprise is termed
as stock.
It may be of two types
 Opening stock is the stock in hand in the
beginning of accounting year.
 Closing stock is the stock in hand at the end of
accounting year.
 Inventory
Inventory is a wider term which also includes stock. In a normal
sense stock and inventory are taken as synonym. Normally
inventory term is used by the manufacturing industries.

Types of inventory
 Inventory of raw material
 Inventory of work in progress
 Inventory of finished goods
 Inventory of stock in trade
 Inventory of raw material
It includes inventory of raw materials purchased for using them in the
products manufacture but still lying unused.
Inventory of work in progress
it is a stock that is in the process of being finished that is they are partly
finished goods. It is valued at an aggregate of cost of raw material used
cost of labour, other production cost etc.
Inventory of finished goods
It includes the inventory of those goods which have been completely
processed and are ready for sale but are line on sold at the end of the
accounting period.
Inventory of stock in trade
It includes the value of those goods which are purchased for reselling.
 Debtors
The term debtors represent those persons or firms to whom
goods are sold or services rendered on credit and the payment
has not been received from them.

Bill receivable
Bill receivable means a bill of exchange accepted by a debtor,
the amount of which will be received on the specific date.

Trade receivable
Total amount of debtors and bill receivable is known as trade
receivable.
Debtors + Bill receivable = Trade Receivable
 Creditors
The term creditors represent those persons or firms from
home goods have been purchased or services procured on
credit and the payment has not been made to them.

Bills payable
Bills payable means a bill of exchange accepted by the
person or enterprise, the amount of which will be payable on a
specified date.

Trade payable
Total amount of creditors and bills payable is known as trade payable.
Creditors + Bills payable = Trade Payable
Voucher is an evidence of business transactions which
provide the authorisation to pay and on the basis of
which the business transactions are first of all recorded
in the books of accounts.
For example, cash memo, debit and credit notes, invoice
or bill etc.
 Insolvent
It is a situation of a debtor in which he is not in the position to pay his
debt.
Bad debts
Due to insolvency or bankruptcy of the debtor, the amount that has
become irrecoverable from the debtor is called bad debts. It is a loss to the
business.

Bad debts recovered

Sometimes it happens that, after writing off the account of a customer as
bad debts previously due to his insolvency, the amount from such
customer recovered unexpectedly, is termed as bad debts recovered. It is a
gain for the business.
 Livestock
Domestic animals, such as cattle or horses are known as
livestock.

Investment
Investment refers to deployment of funds in the shares of
debentures of company with the intention of earning a return.
Merchandise
It means goods for Resale
Depreciation is decrease in the book value of a tangible fixed asset
because of usage or with passage of time or obsolescence or
accident.